Siena:The Fiscal Council President, Andreas Charalambous, highlighted several challenges confronting the Cyprus economy during a meeting with the House Finance Committee. These challenges include issues in the pension system, public expenditure, and the low implementation rate of development projects.

According to Cyprus News Agency, Charalambous discussed the impact of tax reforms, noting that the effect was smaller than expected due to salary increases among public sector employees that expanded the tax base. Additionally, issues with tax compliance persist, as measures introduced have yet to yield significant improvements in tax collection.

A significant focus was on the sustainability of the Social Insurance Fund (SIF). Charalambous emphasized the importance of increasing social insurance contributions, which has been facilitated by the employment of well-paid foreign nationals. An increase in contributions is anticipated in 2029, crucial for maintaining the system's sustainability. He also advocated for the gradual introduction of a second pension pillar to ensure long-term sustainability.

Demographic changes pose another challenge, with future pressures expected on the pension system due to a shift from four workers per pensioner to a two-to-one ratio. Charalambous stressed the importance of maintaining low public debt to support future pensions and argued for the inclusion of pension reform in the state budget to provide a comprehensive view of public finances.

On public debt, Charalambous described its continued decline as positive, indicating potential for addressing future expenditure needs without resorting to wasteful spending. He noted that the decision to stop borrowing the surpluses of the SIF would lead to balanced budgets. Despite exceeding net primary expenditure targets, he pointed out that the modest increase in the public sector wage bill for 2027 is temporary.

Charalambous also critiqued the targeting of social expenditure, suggesting that most measures, apart from the Guaranteed Minimum Income, lack focus. He warned that unlimited social expenditure might not effectively reduce social inequalities.